UK income tax can be a labyrinth, especially in the expatriate arena. However, there are plenty of common issues which apply to UK nationals working and living outside the UK.
This article will focus on UK expatriate tax issues in a Q & A format.
Q: Dan is British and lives in Cairns, and is required to file a UK income tax returns. What are the key dates?
His self-assessment tax return must be filed online by 31 January. The penalty for missing that date is £100. Penalties further delays can reach a total of £1,000 for filing six months late. No thanks.
Q: Mel moved to Australia in March. Is she a resident for tax purposes in the UK?
There is a long list of tests but not every individual must meet every new rule. Mel might claim UK non-residence by applying a shorter set of tests. The first set of questions:
- Is she working full-time, namely 35 hours or more ?
- When carrying out her job, she must not take breaks of more than 31 days in a row. More details underpin this rule, but that is the main principle.
- She must not carry out more than 30 workdays in the UK. We have to ask how likely that is, for Mel in Australia, but see 4.
- She must spend 90 days or fewer in the UK. Again, is this a real worry for Mel ? Perhaps if she works for a British company and she is required to return home for work.
If Mel can meet these four tests, she is in a good position to secure tax non-residence. If she cannot meet them, there are other tax laws available to her. More than one way to skin this cat.
Q: What should Mel do for peace of mind?
In relation to points 2 and 3 it is often sensible to take professional tax advice. The definitions of “downtime” and UK workdays are not logical or obvious.
Q: Jo moved from London to Melbourne. She rents out her UK house, what are her UK tax issues?
If she is earning approximately £10,000 gross rent or more, it is advisable to file a UK tax return (If she is already in the UK tax return system, she may even have to report a far lower rents to HMRC). There may be no UK tax due but better for Jo to approach HMRC than the other way round.
Q: Kate moved from Edinburgh to Sydney. She saves £450 per month of her salary into her UK bank account. She also pays into an ISA.
Problem! Kate is not allowed by UK law to pay into an ISA as a UK tax non-resident. She must talk to her bank; or her UK tax advisor if the bank look confused (not uncommon on ISA issues).
On her other savings account, Kate is likely to be taxed on UK interest. As a non-resident she should consider re-directing all of her savings to a Jersey or Isle of Man; tax-free savings. Lloyds bank and others can arrange the new offshore account. Our firm has contacts in this market.
Q: Gerry is 48 from Cardiff and has lived in Australia for the last 7 years. He plans to retire back to the UK sometime in the next 5-10 years. Can he claim a full UK state pension when he retires in ~20 years’ time.
Gerry must make a total of 35 years of National Insurance contributions. If he has not been paying them (eg when living abroad) there are ways in which he can “buy” extra years.
The total UK pension payout has been greatly increased by the current Government to £7,500 per year from £5,700. A major incentive for Gerry to rectify his position.
Q: Guy is moving from Oxford (UK) to New South Wales for 2 – 3 years. Does he need an expatriate tax advisor to provide UK exit tax advice?
Not every international assignee takes professional advice. Some prepare their own HM Revenue & Customs (HMRC) exit forms and UK departure tax return. A tax advisor can help taxpayers to cease to be UK taxable, the day that he leaves (which also gives a healthy tax saving). Expatriates often miss this when acting for themselves, or do not know how to arrange this. For departure year tax returns, the residence rules created a series of puzzles on the return residence pages. Again, some expatriates will navigate these alone and succeed. Others will fall into the traps set by the UK taxman (even though HMRC never admit to setting traps!)
Q: Larry an Englishman has lived in Brisbane for the last 6 years, except for 2017 when he was back in the UK for 10 months. He has several UK rental properties which generate a decent income. He has UK savings accounts which provide significant interest.
Larry: “I have never been asked to file a UK tax return, and I do not plan to declare my position. How will HMRC catch me ? I am hardly in the UK!”
The UK tax authorities can now readily access Larry’s UK banks to provide details of all savings and even bank statements. His statements will show interest paid and that he was present in the UK for 10 months using ATMs. (This leads to daycounting by HMRC and residence problems for Larry.) In 2017 he is likely to have been UK tax resident and fully taxable on earnings. If HMRC suspect that Larry is landlord to several properties, they can ask letting agents to provide details of rent collected. They also require agents to withhold UK tax at source before Larry receives it.
In short, be careful Larry – is it worth it ? HMRC look far more kindly on those who approach them with unpaid taxes.
We always advise expatriates to fully disclose income to HMRC, then we seek out EVERY possible tax relief. There are many. The “duck and cover” policy carries far too much risk.
About the Author: Not only is Oliver Heslop the director at Global Expatriate Tax Services, he also has 18 years experience working with the Big Four accounting firms. Oliver’s credentials include being the sole expat UK tax advisor at the US Embassy in London.
If you have any questions or need advise on your income taxes please contact Oliver at Global Expatriate Tax Services.